A veteran Republican senator doesn’t just want to block any efforts to implement the so-called millionaire’s tax, he wants to give the state’s highest earners a tax break.
Sen. Joseph Pennacchio (R-Morris) has proposed a bill that would lower the state’s top-end income tax rate to ease the burden on all those earning $500,000 or more.
That’s in stark contrast to the Democrats who control New Jersey’s Legislature. They’ve tried repeatedly to ratchet up taxes on the state’s premier earners, looking to raise money to invest in things like education and public-employee pensions. But Gov. Chris Christie has fended off those efforts, saying income-tax hikes, even for just the state’s wealthiest residents, would crush New Jersey’s economy.
Cutting their taxes, argues Pennacchio, would do just the opposite, putting New Jersey on a more competitive footing with neighboring states that levy lower taxes. And that would encourage business leaders and others to relocate here, he said.
“We have to be competitive. We have to make it worth their while to come here,” he said. “The idea is to stimulate growth.”
But critics say taking revenue out of the budget for the tax break Pennacchio is proposing would mean less funding for schools, property tax relief, and other middle-class priorities.
Christie, a second-term Republican who is now running for his party’s presidential nomination, and GOP lawmakers have long complained that the state’s highest earners are already being relied on to carry too much of the overall income-tax burden.
Under Pennacchio’s bill, New Jersey would cut a full percent off the state’s current top-end income tax rate of 8.97 percent. That rate, according to New Jersey’s progressive income-tax structure, is charged on every dollar earned over $500,000.
Pennacchio said a top-end rate of 7.97 percent would still be “a hefty amount of taxes.”
It’s unclear right now how the tax cut would affect the state’s overall income-tax haul since the bill was just introduced and a fiscal note has yet to be prepared by nonpartisan legislative analysts.
In all, the state income tax under its current rate structure is projected to generate nearly $14 billion for the $33.8 billion spending plan that Christie signed into law in late June. That’s the highest amount forecast to come in from any of the state’s major sources of tax revenue during the fiscal year that ends June 30, 2016.
But the 2016 fiscal year budget will also underfund the state’s school-aid formula, public-employee pension-funding law, and Homestead property-tax relief program, among other items. Democratic lawmakers tried to raise more income-tax revenue from the state’s highest earners in a bill they sent to Christie in late June.
[related]That bill, which Christie rejected, would have created a new top-end income tax rate of 10.75 percent on earnings over $1 million. The higher rate would have generated a projected $675 million from the roughly 17,000 taxpayers who earn more than $1 million annually. It also would have left in place the 8.97 percent rate on earnings between $500,000 and $1 million.
Instead of increasing income taxes on high earners, Christie has tried to grow the economy and revenues by enacting a series of business-tax cuts. His administration has also approved roughly $6 billion in corporate tax incentives since Christie took office in early 2010.
Yet New Jersey’s unemployment rate, though improved, still remains higher than the national average and neighboring states. The state shed 7,400 jobs in June, according to initial estimates.
New Jersey last adjusted its top-end income-tax rate on a permanent basis in 2004. Then-Gov. Jim McGreevey, a Democrat, enacted legislation that set the 8.97 percent rate on earnings over $500,000. The top-end rate to that point had been 6.37 percent.
New Jersey also enacted a temporary, 10.75 percent income-tax rate on earnings over $1 million for one year in 2009.
Pennacchio said the income-tax cut that he’s proposed for the roughly 50,000 who make over $500,000 would generate economic growth by putting New Jersey more on par with its neighbors, including New York, which has a top-end income-tax rate of 8.82 percent. Delaware’s top rate is 6.6 percent and Pennsylvania’s is a flat 3.07 percent, he noted.
“We have to be competitive,” Pennacchio said.
He also said he wants there to be a clear distinction between the way Democrats in New Jersey are trying to grow revenues compared to what he and other Republicans are trying to do.
“I am not ashamed,” Pennacchio said. “If raising taxes could stimulate this economy we would have been stimulated a long time ago.”
“It just doesn’t work,” he said.
But Jon Whiten, the deputy director of New Jersey Policy Perspective, a liberal think tank based in Trenton, said focusing on tax cuts for a “small minority” is the wrong approach to economic growth.
“Cutting New Jersey’s top income-tax rate would deliver a huge tax cut to the 50,000 New Jersey families who have reaped nearly all the economic gains of the past few years while shortchanging the real priorities of all New Jerseyans, like good schools and property-tax relief,” Whiten said.
“Legislators should be focused on growing New Jersey’s stalled economy and helping middle-class New Jerseyans find good jobs — not on delivering tax cuts for the small minority that are doing quite well on their own,” he said.
A spokesman for the Senate Republicans also noted yesterday that Pennacchio is not just an advocate of tax relief for the state’s highest earners. He is also the cosponsor of legislation that would lower all income-tax rates by 10 percent over a three-year period and a bill that would reduce the state’s sales tax from 7 percent to 6 percent.